Academically, we know numbers and math are an important part of business success. In dentistry, we must be vigilant about numbers. Yet, it amazes me that when doctors and staffs are asked about the cost of a crown, they respond with puzzled looks and usually say, “$875” or “$1,140” - whatever their present crown fee is.
I am even more amazed to find that most dentists and their staffs do not know the actual cost of producing a unit in their offices. How can you schedule a procedure if you do not know what that item costs to produce?
Overhead in dental offices has risen from under 50 percent to about 75 percent. It is frightening when a dentist says, “I went ahead and bought the biggest widget. The monthly payment is only $1,445, and that is the equivalent of just two crowns a month. No problem!” “The doctor doesn’t understand his overhead, yet he made an emotional decision involving a monthly cost commitment. In the average office, $1,445 would net $360. To net $1,445 from two crowns, his unit fee would need to be four times $1,445 or $2,848 per tooth.
Rule No. 1: Per-hour cost - In determining real costs per hour, remove from consideration all capital expenditures, continuing-education courses plus travel, and doctor benefits. Also eliminate legal tax deductions for a business, but items that do not influence the cost of producing a unit of dentistry in your office. These would be things like a business automobile, a continuing education course on a Hawaiian cruise, etc. This is not an IRS document.
Subtract your monthly lab bill. Figure an average unit price, then multiply by the number of units. Divide overhead by the total hours in a month that you spend seeing patients. This will give you your cost per hour without lab. Divide this figure by the number of providers in your practice. For example, one doctor and one hygienist equal two providers. This is your cost per hour per provider.
To accurately figure overhead, you must time your procedures, including diagnostic time, prep and seat time, and then add in the cost of laboratory procedures. Once the lab bill is removed, cost per hour for the hygienist is the same as the doctor. Demonstrate this with staff members using your numbers. Once they know the overhead per hour, there is real ownership in scheduling to meet or exceed the hourly overhead. Team members can see there is no room for reduced fees, free work, or constant remakes.
Let’s say your overhead per hour is $127 per provider. A patient calls with a toothache, and it takes 15 minutes of time. Patient schedules for prep, and it takes 45 minutes. The seating of a crown takes another 45 minutes. That is $184 for office overhead. Now add back in the lab bill of $135 for a total of $319. Your fee for the crown is $755, so your net return is $436.
Let’s change the scenario. Overhead is still $127 per hour. The initial toothache still takes 15 minutes of time. The prep appointment takes one hour, but the patient is a “no show” for the seat appointment of one hour. You reschedule the seating appointment, but the crown does not fit. You reimpress the crown and reschedule another one-hour seating appointment. Total time spent on this procedure is four hours and 15 minutes for overhead or $527. Add the lab fee of $135 and the total overhead is $662. Your fee is $755, so you net only $93.
Rule No. 2: Accountability - If your overhead is low, congratulations! If your overhead is high, you can choose a different course. Consider your fees. Optional esthetic treatment, such as veneers, should not be priced the same as a posterior crown. Are you worth it?
Rule No. 3: Big picture accounting - Quit trying to cut overhead with the little things. Buying the cheapest cotton rolls when you are spending 34 percent on staff is fuzzy thinking and fuzzy math. Be bold!
Rule No. 4: Increase your lab bill - Remember, 95 percent of all lab work is one tooth at a time. The average laboratory overhead is 8 percent. If you increase your lab percentage to 12 percent, how would that affect your production/collection figures and your workday? What choices are you giving your patients if your lab bill is increased to 12 percent? If your lab bill is 5 percent, what choices are you giving your patients?
Be smart about your overhead. Make it work for you by making the tough leadership decisions. If your overhead is out of control and you want real help in increasing your bottom line, e-mail me at email@example.com. Money cannot buy you happiness, but it certainly can help you find that happiness.
Dr. Bill Blatchford’s Custom Coaching Program is now available anytime, anywhere. Utilizing 18 years of practice-management experience with more than 1,100 offices, Dr. Blatchford’s custom program involves minimal travel and maximum personal time with the coach, interaction with other doctors, and tons of support. Leadership, systems, case presentation skills, communication, and profitability are emphasized. He can be reached at (800) 578-9155 or visit his Web site at www.blatchford.com.